Chapter 41
Corporate
Merger, Consolidation, and
Termination
Case 41.1
N.Y.,2010.
American Standard, Inc. v. OakFabco, Inc.
14 N.Y.3d 399, 927 N.E.2d 1056, 901 N.Y.S.2d 572, 2010 N.Y. Slip Op. 02830
Court of Appeals of New York.
Fabco). The parties entered an asset purchase and sale agreement which described the purpose of the transaction in the following
words:
“Seller desires to sell, and Buyer desires to purchase, substantially all the assets of Seller, real and personal, tangible and in-
tangible belonging to it, which are used in connection with Seller’s [Kewanee Boiler] business and operations … subject to all
debts, liabilities, and obligations connected with or attributable to such business and operations.”
The agreement said that OakFabco would purchase “Kewanee Assets” subject to “Kewanee Liabilities.” The term “Kewanee Lia-
bilities” was defined as “all the debts, liabilities, obligations and commitments (fixed or contingent) connected with or attributable to
Kewanee existing and outstanding at the Closing Date.”
On cross motions for summary judgment, Supreme Court held that these liabilities were assumed by OakFabco, and entered a
declaratory judgment accordingly (
American Std., Inc. v. Oakfabco, Inc.,
26 Misc.3d 1216[A], 2008 WL 7448031). The Appellate
Division affirmed Supreme Court’s declaration with minor changes, and also granted American Standard’s request “to permanently
enjoin [OakFabco] from re-litigating its assumption of the aforementioned obligations in any forum” (
American Std., Inc. v. Oakfab-
co, Inc.,
58 A.D.3d 485, 486, 872 N.Y.S.2d 12 [1st Dept.2009] ). We granted leave to appeal (12 N.Y.3d 712, 882 N.Y.S.2d 682,
910 N.E.2d 430 [2009] ), and now affirm the Appellate Division’s declaration, but modify its order by vacating the injunction.
II
[1] American Standard’s position-that OakFabco assumed all tort liabilities arising out of boilers manufactured by the Kewanee
If the words “liabilities … existing and outstanding” were read in isolation, OakFabco’s interpretation of them would be plausible.
Indeed, we adopted a similar interpretation of similar language, “liabilities … which exist at the Closing Date,” in
Grant-Howard As-
soc. v. General Housewares Corp.
, 63 N.Y.2d 291, 295, 482 N.Y.S.2d 225, 472 N.E.2d 1 [1984]. But the transaction at issue in
Grant-Howard was of a different kind from the one we are now considering.
The defendant in
Grant-Howard,
General Housewares Corporation, had entered into a “Reorganization Agreement” with Holt How-
with any products manufactured, sold, leased or installed by Kewanee on or prior to the Closing Date….”
638 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
This language clearly meant that the buyer would deal with any problems customers had after the closing date with boilers that had
been installed previously. It would have been absurd for OakFabco to tell a customer whose boiler failed after the closing that,
since the customer’s claim was not “existing and outstanding” on the closing date, it was not OakFabco’s problem. By including
Case 41.2
15 Misc.3d 633, 832 N.Y.S.2d 775
NY,2007.
Christine PARENT, Plaintiff
v
AMITY AUTOWORLD, LTD., et al., Respondents.
1. The plaintiff leased an automobile from Amity Autoworld, Ltd. in January 2002.
2. Amity sold all its Toyota automobile franchise assets and corporate opportunity to respondent J S Autoworld, Ltd. (hereafter At-
3. The plaintiff made a written claim for money damages to Amity on June 11, 2002. (Exhibit 5.)
4. The plaintiff commenced a small claims action against Amity via complaint dated March 9, 2005 and obtained a $2,643 arbitra-
5. The Suffolk County Sheriff returned the plaintiff’s execution against Amity as unsatisfied on July 12, 2006, advising that the
6. Atlantic Toyota employs the same comptroller as Amity after the sale, as well as several other employees including the Amity
salesperson, Anthony Pizutto. (Exhibit 6.)
7. Atlantic defends four to five legal action claims made annually against Amity, including another independent arbitration action
maintained on the date of this hearing, in this court.
8. Amity’s principal stockholder is John Staluppi, Jr., who is the son of Atlantic’s principal stockholder John Staluppi, Sr. John Sta-
hibit 1.)
Issues Presented
Can a small claims judgment creditor extend liability under the judgment to either the directors of a defunct judgment debtor corpo-
ration or the transferee of all the defunct judgment debtor corporation’s assets pursuant to the provisions of UDCA 1813 and 1814?
Discussion
This is a small claims proceeding being prosecuted by a pro se plaintiff. The Uniform District Court Act has anticipated the fact that
laymen often do not know the formal corporate name of commercial businesses who sell to consumers under assumed doing busi-
ness as names. In an effort to not frustrate the purpose and function of the small claims court, the State Legislature enacted sever-
al statutes which allow plaintiffs to commence actions via complaint against the trade name of commercial entities and to thereafter
enter judgment as against such other entities as the court determines is actually doing business. The statutes are section 1813 (a)
and section 1814 (a) which provide as follows:
Ҥ 1813 Duty to pay judgments
“(a) Any person, partnership, firm or corporation which is sued in a small claims court for any cause of action arising out of its
business activities, shall pay any judgment rendered against it in its true name or in any name in which it conducts business.
‘True name’ includes the legal name of a natural person and the name under which a partnership, firm or corporation is licensed,
registered, incorporated or otherwise authorized to do business. ‘Conducting business’ as used in this section shall include, but
not be limited to, maintaining signs at business premises or on business vehicles; advertising; entering into contracts; and print-
ing or using sales slips, checks, invoices or receipts. Whenever a judgment had been rendered against a person, partnership,
firm or corporation in other than its true name and the judgment has remained unpaid for thirty-five days after receipt by the
judgment debtor of notice of its entry, the aggrieved judgment creditor shall be entitled to commence an action in the small
claims court against such judgment debtor, notwithstanding the jurisdictional limit of the court, for the sum of the original judg-
ment, costs, reasonable attorney’s fees, and one hundred dollars.”
640 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
The issue of the repeal of article 6 (Bulk Sales Law) of the Uniform Commercial Code is more problematic. Uniform Commercial
Code commentators have opined that
“[b]ulk sale legislation originally was enacted in response to a fraud perceived to be common around the turn of the century: a
merchant would acquire his stock in trade on credit, then sell his entire inventory (‘in bulk’) and abscond with the proceeds, leav-
ing creditors unpaid. The creditors had a right to sue the merchant on the unpaid debts, but that right often was of little practical
value. Even if the merchant-debtor was found, in personam jurisdiction over him might not have been readily available. Those
creditors who succeeded in obtaining a judgment often were unable to satisfy it because the defrauding seller had spent or hid-
den the sale proceeds. Nor did the creditors ordinarily have recourse to the merchandise sold. The transfer of the inventory to an
innocent buyer effectively immunized the goods from the reach of the seller’s creditors. The creditors of a bulk seller thus might
be left without a means to satisfy their claims.” (
See
ULA, UCC Prec. § 1, Refs & Annos [2005] [Prefatory Note to rev UCC art 6,
2C ULA 6].)
For a reason not stated in the statute’s annotations, the Legislature followed the recommendation of the National Conference on
Uniform State Laws and the American Law Institute and repealed its Bulk Sales Law. Absent enactment of a replacement statute,
or at least a declaration of the Legislature’s policy reasons in the repeal statute’s legislative history, the court is constrained to find
“(1) The directors of a dissolved corporation shall not be deemed to be trustees of its assets; title to such assets shall not vest in
them, but shall remain in the corporation until transferred by it in its corporate name.”
Ҥ 1007. Notice to creditors; filing or barring claims
“(a) At any time after dissolution, the corporation may give a notice requiring all creditors and claimants, including any with
unliquidated or contingent claims and any with whom the corporation has unfulfilled contracts, to present their claims in writing
and in detail at a specified place and by a specified day, which shall not be less than six months after the first publication of such
notice. Such notice shall be published at least once a week for two successive weeks in a newspaper of general circulation in
the county in which the office of the corporation was located. . . .
“(b) Any claims which shall have been filed as provided in such notice and which shall be disputed by the corporation may be
submitted for determination to the supreme court under section 1008.”
Case 41.3
332 Mont. 503, 139 P.3d 806, 2006 MT 164
Justin SARTORI, Plaintiff and Respondent,
v.
S & S TRUCKING, INC., a Montana corporation, and Anthony Stacy, Defendants and Appellants.
No. 05-429.
Submitted on Briefs: April 19, 2006.
Decided: July 19, 2006.
Justice delivered the Opinion of the Court.
*504 ¶ 1 Justin Sartori sued his business partner, Tony Stacy, for breach of corporate fiduciary duty with regard to their corpora-
tion, S & S Trucking, Inc. (“S & S”). Stacy answered the complaint and asserted a counter-claim..**807 Although the District
Court concluded that Sartori breached his fiduciary duties to S & S, the court did not grant damages and/or attorney fees to Stacy,
642 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
and because the corporation’s loan was under Sartori’s name, the court ordered S & S dissolved unless Stacy paid off or re-
financed the loan within a set time.
¶ 2 We restate the appeal issues as follows:
¶ 3 1. Did the District Court err in ordering corporate dissolution when it did not find that the corporation had been injured?
¶ 4 2. Did the District Court err in not awarding damages and/or attorney fees to S & S, even though it concluded Sartori breached
his fiduciary duty to the corporation?
BACKGROUND
¶ 5 In 2003, Stacy, who worked as a truck driver, approached his friend, Sartori, also a trucker, about purchasing a hauling busi-
ness. Sartori expressed interest in the proposal, and the two men applied for *505 a business loan with First Interstate Bank in
Eureka in order to make the purchase. Because Sartori had a good credit history and Stacy did not, the bank agreed to loan Sar-
tori the money. The bank finalized the loan listing “JUSTIN M. SARTORI DBA: S & S TRUCKING” as the borrower. The loan
was for a term of years in the amount of $78,493.68. Although the bank did not list Stacy as a borrower on the loan, he nonethe-
less pledged his logging truck and trailer as collateral. Sartori pledged twenty acres of real property that he owned with his wife.
¶ 7 Within weeks after forming the corporation in September 2003, Stacy and Sartori began to realize that they had incompatible
working styles. Several incidents occurred in which Sartori did not show up when or where Stacy expected. Stacy came to be-
lieve that Sartori was not pulling his weight and therefore proposed some changes in the way the parties initially agreed to pay out
earnings from the company’s income. Sartori refused to approve the changes and the relationship further deteriorated. Both men
contacted attorneys to see about disentangling from the corporation. Eventually, Stacy scheduled a meeting for November 22,
2003, to iron out the parties’ differences, but Sartori refused to attend once he decided the notice was for a board of directors
meeting and that Stacy failed to notify him sufficiently in advance per the bylaws.
¶ 8 Prior to the November 22, 2003, meeting, Sartori engaged in a number of actions to undermine S & S, including incorporating
a new trucking company, Brimstone Enterprise (“Brimstone”), on October 31, 2003. In addition, Sartori contacted the Eureka Post
Office to have S & S’s mail forwarded to Sartori’s mail box; he transferred S & S’s Department of Transportation (“DOT”) number
to Brimstone; he cancelled or transferred S & S’s vehicle licenses; he contacted S & S’s suppliers and cancelled or attempted to
cancel S & S’s accounts; he closed S & S’s bank account; and he attempted to transfer S & S’s insurance to Brimstone. Sartori
CHAPTER 41: CORPORATE MERGER, CONSOLIDATION, AND TERMINATION 643
(c) the shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual
meeting dates, to elect successors to directors whose terms have expired; or
(d) the corporate assets are being misapplied or wasted.
(Emphases added.) The District Court determined that dissolution of S & S was appropriate pursuant to subsection (a).
¶ 15 Stacy maintains on appeal that, rather than dissolving the corporation, the District Court, using its power under , should have
simply removed Sartori as a shareholder and director of the corporation. While Stacy appears to concede that he and Sartori
were unable to break their management deadlock as to corporate affairs, he argues that the court failed to find any harm to the
corporation per the statutory language. Stacy stresses the fact that S & S is now a twelve-employee company that has thrived in
the wake of Sartori’s departure. Since there has been no corporate injury, Stacy argues, there can be no dissolution.
¶ 16 In making this argument, Stacy ignores relevant statutory language. **809, provides that the court may order dissolution if
“irreparable injury to the corporation is threatened or being suffered or
the business and affairs of the corporation can no *508
longer be conducted to the advantage of the shareholders generally because of the deadlock.
” (Emphases added.) Stacy and
Sartori were S & S’s only shareholders. Although the corporation may not have suffered irreparable injury, the District Court found
that the management deadlock led Sartori to take numerous steps to sabotage the corporation. As a result, the business and
affairs of S & S could no longer be conducted to the advantage of the shareholders, Stacy and Sartori. The court properly exer-
cised it statutory authority when it dissolved S & S.
¶ 17 In dismissing Stacy’s argument, we note that he cites cases that apply , the predecessor to , to support his contention that
the District Court only had authority to dissolve the company if it found corporate injury. The earlier statute provided that a corpo-
ration can be dissolved in an action “by a shareholder” when it is established that:
the directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock
and that irreparable injury to the corporation is being suffered or is threatened by reason thereof.
¶ 18 While the earlier rendering includes similarities to the present statute, the two differ in key respects. First of all, under the
former statute, irreparable injury is a prerequisite to dissolution. Under the present statute, irreparable injury is listed in the dis-
junctive and is thus not necessary. Further, the older version does not provide that a “court” may dissolve a corporation because
“the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of
the deadlock.” In light of these differences between the two statutes, Stacy’s references to cases discussing the predecessor
statute are not pertinent to our analysis.
¶ 19 We hold that the District Court correctly ordered dissolution of S & S pursuant to .
¶ 20 2. Did the District Court err in not awarding damages and/or attorney fees to S & S, even though it concluded Sartori
breached his fiduciary duty to the corporation?
